House of Representatives Committees

Dissenting Report—Senator Mark Bishop

I wish to express dissent with the Committee's position as
expressed at paragraphs 3.30 – 3.35 concerning the provision of information on
indexation of project funding, and the reversal of the ANAO's previously expressed
position.

The role of the Committee in scrutinising Defence accounts
on behalf of the Parliament and the taxpayer, as assisted by ANAO, is to
monitor the Defence procurement program for the delivery of important
capability on budget, in light of a disastrous history of over expenditure. Not
to mention extremely late delivery, getting worse, thereby dramatically
reducing ADF capability.

In monitoring costs the Committee, through the Major
Projects Review (MPR) conducted by ANAO, has traditionally received information
on timelines, as well as original project cost as approved by government
together with any approved changes in scope, and the effect of price escalation
and foreign exchange movements as separate factors beyond the control of
Defence and DMO.

Identification of both these latter variables has enabled
the Committee to judge not just the overall performance of Defence and DMO in
delivering Defence capability, but financial and project management in
particular. The MPR report has to date provided detail on both those variables,
but now, as agreed by DMO and ANAO, and accepted by the Committee, the
indexation figure will no longer be provided for post 2010 projects. I don't
accept that position for the following reasons.

As agreed by the Committee and many other critics over
recent years, the largest single failing of the Defence procurement system is
inadequate project specification and over optimism on part of Defence and
industry, leading to cost blow outs and enormous delays. The result of that is
that governments are effectively misled, resulting in additional disciplines
and processes, and new measures of ensuring transparency and accountability,
such as the JCPAA work and this MPR review process.

Within the funding process, 'the Government decision
provides a limit on project expenditure apart from variations for price
indexation, foreign exchange adjustments and other subsequent approval
decisions'.[1] Within that project
price, provision is also made for contingencies, which are unforseen but
inevitable, particularly in the case of large and complex projects. It's
understood that caps are placed on both contingency and price indexation as a
discipline in managing funds, but also imposing pressure for more accurate
project specification and cost estimating from the outset. The Committee has no
information of the level of contingency funding or the effectiveness of that
discipline, but it has to date been provided with the detail of price
indexation and foreign exchange variations within each project which have
proven very informative and useful.

It's now asserted by DMO that it's no longer possible to
report on price indexation, with the rationale that 'that information is not
normally public' and that such itemisation 'is not part of the proposal that
goes to government',[2] asserting also, rather
presumptuously, that the Committee doesn't need to know. Putting aside this
unfortunate attitude to which I object, if in fact there has been a change in
budget practice by allowing global project funding, I believe it's a retrograde
step at a time when transparency and accountability should be maintained not
reduced.

Especially given that the total budget for price indexation
last year was $1.16 billion – no small amount to be hidden away.

Furthermore, given that such reporting has been possible to
date, the Committee might well ask what has happened to make it
administratively impossible as alleged. Indeed the advice of the Auditor
General to the Committee was that in exchange for agreement to the use of out
turn prices, which is logical, other 'sufficient disclosures' should be
maintained to allow assessments to be made of project performance against
budget' - including indexation amounts. Acceptance by the Auditor General of
the DMO line is therefore somewhat disappointing, particularly given the
tenacity which ANAO has shown over recent years in flushing out the
inefficiency and waste within Defence procurement. In fact without ANAO there
would be no MPR, little scrutiny at all, and the Parliament and the taxpayer
would be blind.

Simply put I believe that the current reporting on financial
and output timeliness by DMO and Defence need to be retained. Noting too, that
the government has also tightened up by placing a limitation on indexation for
post 2010 projects whereby it ceases at the agreed delivery date, thus imposing
a welcome added disincentive for time over runs and extra unbudgeted cost.

Notwithstanding the administrative task in reporting price
indexation fluctuations, it's essential knowledge, just as contingency costs
and exchange rate variations are. Together with approved project costs as
contracted, they form a total picture by which the Committee and the Parliament
can make judgements on the adequacy of performance of the bureaucracy involving
hundreds of billions of dollars into the future, no different to any other area
of administration.

The Committee should continue to gather accurate estimates
for all expenditure, with all variables and risks identified and monitored.
While such estimates might begin as notional, they are negotiated in contracts
presumably, and inevitably become funds expended and must be acquitted. As a
minimum I believe the Committee ought to expect to be informed of all estimates
and expenditure of price indexation over the life of all MPR projects. The
Committee's acceptance of the proposal for the DMO to simply provide an
assurance that any one project will be completed within budget, in part defeats
the Committee's purpose, and effectively removes an important area of
transparency and accountability as a fundamental principle.